Xiaomi Turns Profit on Sales of IPhone-Beating Handset

Sept. 7 (Bloomberg) -- Xiaomi Corp., the smartphone maker
that outsells Apple Inc. in China, has turned profitable for the
first time as market-share gains put the company on pace to
almost triple handset sales this year.

Sales in the first half more than doubled to 13.2 billion
yuan ($2.16 billion), and may rise to 28 billion yuan for the
full year, from 12.6 billion yuan for all of last year,
President Bin Lin said in an interview at the company’s
headquarters in Beijing yesterday. Handset sales may jump to 20
million units, from 7.19 million last year, he said. He didn’t
supply a figure for profit.

The three-year-old company, which was valued at $10 billion
in its latest round of funding, is expanding product offerings
after selling handsets priced at about a third of the cost of
Apple’s iPhone 5 in China. Xiaomi, which on Sept. 5 said it will
sell Internet-ready televisions, will focus on developing new
devices and has no plans to sell shares to the public in the
next five years, founder and Chief Executive Officer Lei Jun
said.

“I’ve been an entrepreneur for over 20 years, I’m not
interested in big companies,” Lei said in yesterday’s
interview. “I prefer to be in a company where I’m on the front
line of our products.”

The TVs announced on Sept. 5, which connect to the Web and
run the Android operating system, go on sale in October.

International Expansion

Last month, Lei hired Hugo Barra, who helped oversee
Android product management at Google Inc., to lead the company’s
international business development as it prepares to take on
Apple and Samsung Electronics Co. overseas.

Lei and Lin both declined to disclose plans for the
international expansion ahead of Barra joining the company next
month.

“That’s what Hugo needs to figure out,” Lin replied in
response to questions about which new markets the company plans
to enter.

Lei on Sept. 5 unveiled the company’s newest handset,
Xiaomi Phone 3, which runs on the networks of all three major
carriers in China. The device, using both Qualcomm Inc.’s
Snapdragon and Nvidia Corp.’s Tegra 4 processors, will be the
world’s fastest smartphone, Lei said.

“Xiaomi wants to spread very fast and become a dominant
player,” said Jeongwen Chiang, chairman of the marketing
department at the Shanghai campus of the China Europe
International Business School. “The China market is very price-sensitive. Xiaomi can sell millions of handsets because they
offer real value for the money.”

Chinese Smartphones

In the China smartphone market, Xiaomi rose to sixth place
in the quarter ending June 30 from eighth a year earlier,
researcher Canalys said Aug. 9. Apple was seventh.

The company currently sells its devices in Hong Kong and
Taiwan, in addition to the Chinese mainland.

“Xiaomi definitely has ambition to expand overseas,” said
Nicole Peng, the China research director for Canalys.

Xiaomi’s initial investors included Singapore’s Temasek
Holdings Pte, Qiming Venture Partners and Qualcomm Ventures, the
company said last year.

The vendor, which has no manufacturing capability of its
own, contracts for production of the devices with FIH Mobile
Ltd. and Inventec Corp., Lin said.

Having sold 15 million handsets in total, Xiaomi’s profit
is getting a lift from rising sales of software and services for
the devices, Lin said. The company had 20 million yuan of
software sales in July, double the monthly revenue four months
earlier, he said. By the end of next year, software sales are
projected to hit $20 million annually, Lin said.

“I feel that we’re a very different company from Apple,”
Lei said. “We’re probably more like Amazon’s Kindle -- to sell
hardware at cost and then to stack services and content on top
of the hardware.”